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A monthly mortgage payment includes at least two parts: an amount that goes toward the principal of the loan (the money you’ve borrowed) and a second amount that goes toward interest (the cost of borrowing the money). Ask me about current mortgage interest rates!

For most homeowners, however, there is also a third part of the mortgage payment: an amount that is paid into an escrow account that the lender maintains for you to pay for things like homeowners hazard insurance, property taxes, condominium and association fees and mortgage insurance (if applicable). This is the element of the monthly payment that can go up or down even in a fixed-rate mortgage.

Together, these items are called PITI:

P — Principal

I — Interest

T — Taxes

I — Insurance

Your tax and insurance costs

Homeowners must pay property taxes and they must have some type of homeowners insurance (fire or property loss insurance as its sometimes referred to). Ask me about which homeowners insurance company would benefit you.

Depending on state laws and other factors, most lenders require homeowners to pay into what is called an “escrow account” or an “impound account” as I like to refer to it. In this account, the lender or mortgage servicer keeps enough money to cover your property taxes and homeowners insurance. You pay into this account each month as part of your mortgage payment. When your taxes are due, the lender/servicer (the word servicer means the company who sends you the monthly mortgage statements but may not necessarily own your mortgage) pays them for you. The same is true for your insurance.

The lender/servicer sends you a periodic statement showing how much is in this account. You can compare the statement with your property tax bill and your homeowner’s policy to ensure that the right amount is being held to cover the payments. The Real Estate Settlement Procedures Act (RESPA), which is enforced by the U.S. Department of Housing and Urban Development (HUD), is the major law covering escrow accounts or impound accounts.

It is important to maintain the required property insurance on your home. If you don’t, your lender/servicer can buy insurance on your behalf. This type of policy is known as “force placed insurance”; it usually is more expensive than typical insurance, and it provides less coverage.

If you’re buying a house, most sellers disclose the amount of the annual property taxes on the house when it is listed for sale. If they don’t, you can easily get this information from your local property tax assessor. A local insurance agent can give you an idea of the annual insurance cost. Divide each of these numbers by 10 and add them to the principal and interest to get the estimated total monthly payment.

Calculating your Monthly Escrow Payment

The monthly escrow payment is calculated by taking the total of all anticipated tax and insurance disbursements for the coming year, and dividing that number by ten. Most mortgage lenders/servicers require a minimum balance in the escrow account of two times the monthly escrow payment. The two month shortage adjustment is added to your escrow account balance so that the level of funds in the account does not fall below the minimum balance required.

Monthly Escrow = (Taxes + Insurance / 10)

Even if your mortgage has a fixed interest rate, monthly mortgage payments may change over the life of the loan due to changes in property taxes and insurance premiums. For instance, if your hazard insurance premium increases by $120.00 per year, the escrow payment will need to increase by $12.00 per month to account for this difference. Under the Real Estate Settlement Procedures Act (RESPA), the escrow payment must be recomputed at least once every 12 months to account for increases in property taxes or insurance. This is called an escrow analysis.

Calculating the Monthly PITI Payment

Mike and Sandra have found a home that costs $180,000. They will obtain a 30-year fixed mortgage with an annual interest rate of six percent, and make a down payment of $30,000 (about 17%). Their monthly Principal and Interest payment adds up to $900. The annual property taxes are $1,650 and the annual homeowners insurance is $780. Their monthly PITI is as follows:

Imperial County and Imperial Valley homeowners who are considering selling their home are encouraged to contact Frederic Din, REALTOR(R) for additional information about getting the most current market values for your home or area. Member of the Imperial County Association of REALTORS (ICAOR).

At the time, in 2011, home sales (all single family residential properties) were showing signs of a slight improvement in sales price however the number of transactions had been steadily trending downward since 2009.

It seems as if now all of the excess inventory is down to a trickle as I wrote about 12 months ago with an article We are in a Sellers Market which emphasized the fact that the number of months of active inventory versus the amount of sales signaled the end of the buyers market months ago, however I was still hearing from other real estate agents telling their buyers we are in a “buyers market” at the time, which is clearly not the case.

So whats happening with Imperial Valley real estate prices now in the El Centro MSA in 2013?

Let’s take a look at the following items using June 17, 2013 as the effective date for Active listings, Pending/Contingent listings, and Sold properties throughout the entire El Centro MSA (Imperial County), which includes all residential properties throughout all of the county. To active, pending, and contingent listing dates from June 1, 2012 and sales from January 1, 2013

Listings for the El Centro MSA (Imperial County) area:

Active

Pending

Contingent

Sold

104

76

163

386

After reviewing the numbers above, lets take a look at the absorption rate for properties in the following Imperial Valley cities. (sales are based upon a three month average and active listings from June 1, 2012 to present):

City

Zip

# Sales/mo

# Active

# Inventory/mo

Absorption

El Centro

92243

19

24

1.29

78%

Brawley

92227

11

21

1.85

54%

Calexico

92231

10

9

0.87

115%

Imperial

92251

21

26

1.26

79%

Heber

92249

4

1

0.27

367%

El Centro MSA

69

104

1.50

67%

* Source: Copyright (c) 2013 Frederic Din, REALTOR(r)

As I talked about in an article a year ago, a buyers market is when the absorption rate is 20% or less and a sellers market is when the absorption rate reaches 60% or higher. All areas above, with the exception of Brawley 92227 have an absorption rate above 60% and the entire Imperial County has an absorption rate of 67%. Sellers market!

Mortgage interest rates continue to be ridiculously and historically low and home prices are still low when compared to the lofty high prices just a few years ago, however the housing inventory overall is newer and more upgraded.

Think about this, in 2003, just 10 years ago, nearly half of the housing stock for sale over the last five hears didn’t even exist and thanks to the housing boom which took place through 2007, these homes provide some wonderful neighborhoods and are desirable places to live.

Home prices are still at low levels however with few homes on the market and more buyers wanting the same properties, prices will rise. How much will the rise? The amount of increase is still unknown since median housing prices have been relatively flat over the last few years, however the number of sales has been declining which is leading to less and less inventory.

Through the first 5.5 months of the year, the median price in 2013 is nearly $140,000 or an increase of approximately 5% over an average of the last few years prices of $133,000.

As a home buyer, you can take advantage of lower sales prices now using low rate financing to lock your home in for a low cost over the long haul and as prices rise, you will have the ability to build equity faster as less homes come onto the market during the next few years.

A few years ago I wrote how home builders are making an increasing presence in the Imperial Valley housing community and builders typically do not enter the market unless they know they can sell a product to buyers and make a profit, these homes are typically priced about 15-20% higher than resale homes. Why are new homes selling and at such a higher price? One simple word, Demand! There is a demand for homes and ready buyers who have stable income, good credit history and a down payment are the ones purchasing these homes.

Imperial County and Imperial Valley homeowners who are considering selling their home are encouraged to contact Frederic Din, REALTOR(R) for additional information about getting the most current market values for your home or area. Member of the Imperial County Association of REALTORS (ICAOR).